Verizon Communications Inc

NYSE:VZ

Earnings Call Transcript 2021-Q3

[Operator]

Good morning and welcome to the Verizon Third Quarter 2021 earnings conference call. At this time, all participants have been placed in a listen-only mode and the floor will be open for questions following the presentation. [Operator Instructions]. Today's conference is being recorded. If you have any objections, you may disconnect at this time. It is now my pleasure to turn the call over to your host, Mr. Brady Connor, Senior Vice President Investor Relations.

[Brady Connor, Senior Vice President Investor Relations]

Thanks, Brady. Good morning and welcome to our Third Quarter Earnings Conference Call. This is Brady Connor and I'm here with our Chairman and Chief Executive Officer, Hans Vestberg and Matt Ellis, our Chief Financial Officer. As a reminder, our earnings release, financial and operating information, and the presentation slides are available on our Investor Relations website. A replay and transcript of this call will also be made available on our website. Before we get started, I'd like to draw your attention to our Safe Harbor statement on slide 2. Information in this presentation contains statements about expected future events and financial results that are forward-looking and subject to risks and uncertainties. Discussion of factors that may affect future results is contained in Verizon's filings with the SEC, which are available on our website. This presentation contains certain non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in the financial materials posted on our website. As a reminder, we've entered the quiet period for the 3.45 gigahertz spectrum auction so we will not be able to comment on our spectrum holdings or strategy. Now let's take a look at the consolidated earnings for the third quarter. In the third quarter, we reported earnings of $1.55 per share on a GAAP basis. Reported results include a net pre -tax gain on the sale of Verizon Media of $706 million and a net pre -tax charge of approximately $247 million, which includes a net charge of $144 million related to a mark-to-market adjustment for our pension liabilities, and $103 million related to severance charge for voluntary separations under our existing plans. Excluding the effect of these special items, adjusted earnings per share was $1.41 in the third quarter compared to a $1.25 a year ago. Please note, our results include 2 months of Verizon Media as the sale to Apollo Funds closed on September 1st. With that, I'll now turn the call over to Hans to take us through a recap of the third quarter.

[Hans Vestberg, Chairman and Chief Executive Officer]

Thank you, Brady, and thank you all for joining our third quarter earnings call. We had a solid performance in the third quarter, growing total wireless service revenue by 3.9% year-over-year with earnings growth. This was supported by strong net additions in wireless and broadband, which are both translated to bottom line growth. This definitely confirms our strategy to grow our business with high quality offerings. As I've said throughout the year, we have all the assets we need to extend our number 1 position in the market. Our strategy remains unchanged and we're delivering on everything we promised, and we're gaining momentum on all of 5 vectors of growth. We are more passive to grow than anybody else and we're confident with our growth [Indiscernible] throughout the years based on our third quarter and continued momentum into the fourth quarter. As an evidence, we're updating financial guidance for the full year. We now expect total wireless service revenue growth of around 4%, which is on the high-end of our prior guidance, and adjusted EPS of 535-540 up from 525-535. We remain on track to achieve our targeted Capex levels in 2021, assuming no further disruption in the supply chain. Our team is working diligently and doing a fantastic work with vendors and suppliers to ensure we have adequate equipment to meet our C-Band build and that we have devices that are customer want. Our operation excellence and our partnership strategy is the best in the industry, which I've been so impressed by since I joined Verizon. And in times like this, it matters. Let's talk about business. We continue to provide the best-in-class experience across the board. On the network front, third-parties continue to recognize us as the best network experience. These includes RootMetrics for the 16th consecutive time, and JD power for the 27th consecutive time. Our network team is doing a great job. On the commercial front, we've got great momentum into five-year adoption with over 25% of our consumer foam-based using a 5G capable device. This is tracking well ahead of the 4G adoption, as I've said before. Ffor context, 12 months of the 4G loans, 10% of the devices were in 4G. Less than 12 months after 5G DSS launched, more than the double were on 5G devices and it's growing at a rapid pace. These combined with our millimeter-wave strategy is an important combination and that is paying off. In the third quarter, the total millimeter wave uses more than double sequentially. We're doing more gigabit of usage in a month now than we did in all the first quarter. In some of our more established build-outs, we're seeing more than 20% of usage on millimeter wave. And we're on track to have 5% to 10% of all traffic in the urban millimeter wave polygons by year-end. For our business segments, we continue to add wireless subscribers and take broadband share in our ILEC footprint with Fios. And finally, with delivers significant value creation and strategy refinement with a sale of the Verizon Media Group in September, depending TracFone acquisition and also the issuance of our third green bone, which is a vital step towards our net zero goal in 2035. All this was accomplish in tandem with a strong quarter results. When it comes to the financials, we're on track to meet and exceed all of our 2021 guidance. We expect to have a strong finish of the year as we approach the launch of C-Band. We continue to deliver excellent revenue performance in wider service and within Fios. We have a diversified path for revenue growth with all five vectors contributing. EBITDA was up 3.3% year-over-year. And on an adjusted basis, EPS was up 12.8%. Our capital allocation stands firm. We invest in our [Indiscernible] shareholder value. We continue to increase our dividend, which we did for the 15 consecutive year. And Matt and team are working dealing on our depth reduction. As we said last quarter, our guidance race is broad-based and across all our 5 vectors of growth. Consumer segment EBITDA increased by 2% driven by positive trends in customer acquisition, premium plan adoption, products and services, and content, as well as prepaid and reseller growth. The service revenue momentum in the third quarter was driven by continued execution of our migration strategy to higher-valued price plans, as well as high quality net adds. But our growth is more than that. Much of our long-term growth is in fixed wireless access and mobile edge compute. Our strategy is becoming a national broadband provider with the best access to tech for our customer includes Fios, fixed wireless access on 5G, 4G millimeter-wave and C-Band. When it comes to the mobile edge compute, we are the mobile edge compute leader, both in public and private. Thanks for great partnerships. And we just announced a private mobilized compute partnership with Amazon that we're pleased with. And this year scratches the surface on how we will continue to utilize our assets. We're confident in our growth opportunities as we move into the investment cycle with C-Band. Before I hand it over to Matt, I want to briefly touch on our broadband expansion. We're on track to meet our fixed wireless access household coverage targets with an expected 15 million homes passed by the end of the year between 4G and 5G. To-date, five-year home is in 57 markets. And the 4G LTE home in over 200 markets across all 56. In addition to fixed wireless access, we're pleased with the great performance or Fios and continue to grow the open for sales volumes within our footprint. We're on track on exceeding all the commitments for 2021 and on track for long-term growth expectations outlined in our Investor Day earlier this year. You can expect us to provide 2022 guidance during our Q4 21 earnings call. And now, Matt, over to you.

[Matthew Ellis, our Chief Financial Officer]

Thank you, Hans and good morning, everyone. I'm pleased to be with you today to share our Q3 results, another quarter in which we delivered strong financial and operating performance. As we have said previously, our focus is not solely on volume growth as a goal in itself, but on high-value volume growth that will yield sustainable increases in revenue and profitability going forward. By delivering the best-in-class network experiences to customers with additional services and products like Disney Plus that others can't provide our strategy is focused on increasing the value we received from every connection. As you can see from our results, our disciplined approach is driving profitability and strong earnings results. In the third quarter, consolidated total revenue was $32.9 billion, up 4.3% from prior year. Our results are inclusive of 2 months of Media revenue, which approximated $1.4 billion on a segment basis. Excluding Verizon Media, total revenue grew 5.5%. Our service and other revenue growth rate was 0.5% and 1.6% without Verizon Media. Equipment revenue growth was approximately 30% compared to the prior year, mainly due to the timing of iconic device launches and the continued pandemic recovery. Fios revenue was 3.2 billion up 4.7% year-over-year, driven by continued growth in customers, as well as our efforts to increase the value of each customer by encouraging them to step up in speed tiers. Total wireless service revenue, which is the sum of consumer and business, was $17.1 billion, an increase of 3.9% over the prior year. The results were driven by higher access revenue, volume growth, and products. We are creating more paths to growth with connectivity and non-connectivity services. Adjusted EBITDA in the third quarter was $12.3 billion up 3.3% from prior year. Top-line growth and a reduction in non-equipment related expenses contributed to the year-over-year EBITDA growth. And that EBITDA growth is helping us drive EPS growth. For the quarter, adjusted EPS was a $1.41, up year-over-year by 12.8%. Now let's take a look at our consolidated metrics. Throughout the quarter, we remained focused on bringing in high-quality net adds, a key component in helping us continue to deliver strong quarter-over-quarter revenue growth. We are seeing strong demand for connectivity across our consumer and business units. Our Mix and Match value propositions, network quality, and unique partnerships are resonating with both new and existing customers. For the quarter, we delivered 429,000 wireless retail postpaid phone net adds. up more than 50% from prior year and in line with 2019 levels. We're seeing growth in new accounts, as well as high retention levels, allowing us to grow our base with high-quality net adds, phone churn for the quarter was 0.74%, well below pre -pandemic levels. Churn continues to benefit from a number of sustainable factors, including our best-in-class network with unmatched reliability and coverage and overall value propositions within our consumer and business unlimited plans. Additionally, consumer payment patterns continue to be better than pre -pandemic norms. Total broadband net adds, defined here as Fios, DSL, and fixed wireless; were 129,000. Fios Internet net add were 104,000 compared to 144,000 last year. As a reminder, last year's 3Q Fios results included a benefit from a higher backlog entering the quarter, as we had largely paused installs in Q2 2020 due to COVID. Fios has continued momentum driven by our best-in-class value proposition, built on network quality, and our Mix and Match pricing structure. This combination is helping us to take share and deliver historically low churn rates. For the first time we're providing fixed wireless net adds, which include both consumer and business fixed wireless products. We are building momentum and our pre C-Band success in Q3 demonstrates there is demand for the product from consumers and businesses. Both our 5G and LTE fixed wireless products are performing very well. We're pleased with what we're seeing around the install process, as well as the quality and reliability of the product. Now, let's turn to our Consumer Group results. Our Consumer Group had another strong quarter, continuing the momentum that we've been seeing in wireless and Fios. Total revenue was $23.3 billion up 7.3% year-over-year. Service and other revenue was $18.8 billion, an improvement of 2.5% versus prior year. These results include strong wireless revenue, as well as growth in Fios. Fios revenue was $2.9 billion, up 4.3% year-over-year mainly driven by growth in our Internet base of approximately 400,000 or 6.2% over the past year and migration to higher speed. Our actions around Mix and Match, which include a broadband first approach is helping us to grow with Fios revenue and Consumer EBITDA. We still see plenty of room for additional growth within Fios as we continue to increase our share Mix and Match penetration rates and are open for sale locations. Wireless service revenue is $14 billion up 4% from the prior year. We have been driving access gains both in growing accounts and phone net ad, as well as by continuing to execute on our migration strategy. As a result of migrations and step-ups, over 30% of our account base is now on premium unlimited plans. Our growth in access is being complemented by product revenue, which includes items such as protection plans, content, and others. Our wide range of product offerings helps us to not only grow revenue, but provides differentiated experiences and more value to our customers. For the quarter, EBITDA was $10.5 billion, up 2% year-over-year or more than $200 million, driven by our high quality service and other revenue gains coming from multiple growth vectors. These results show the impact of our strategy to enhance the value of each connection, which we believe will drive continued growth into the future. The Mix and Match pricing structure for both wireless and Fios provides tremendous opportunity to migrate customers to higher-value tiers and bringing customers and higher value plans. We're very pleased with how this strategy is working to help us increase value from our base and from new customers. You can see the impact of this strategy throughout our results. Postpaid phone net adds were 267,000 above our Q3 performance in 2019 and 2020. the performance was consistent during the period, as we are able to grow accounts and deliver sustainably low churns throughout the quarter. Most importantly, we continue to be very pleased with the quality of customers we're adding. With approximately 66% of new accounts taking a premium unlimited plan. And Q3 was another quarter in which we saw a strong acceleration in our 5G penetration, exiting the quarter with over 25% of our phone base now equipped with a 5G capable device, which is great progress in advance of our launch of 5G service from C-Band spectrum in the coming months. Fios Internet net adds were 98,000 for the quarter, up slightly from the prior quarter. We continue to be pleased with the results we're seeing, especially on retention. Now, let's move to slide 11 to review the business group results. Our business segment continues to see strong demand for wireless services across multiple verticals. We are continuing to focus on what we believe will be the highest growth portions of the business segment, our small and medium business unit, private wireless, and the Mix space or enterprise customers, as well as building momentum for fixed wireless access to serve multiple customer groups. Total revenues for the business segment was $7.7 billion. We continue to see growth in wireless revenue being offset by ongoing legacy wireline declines. Wireless service revenue was $3.1 billion up 3.6% year-over-year. We saw quarter-over-quarter expansion driven by small and medium business, which was partially offset by distance learning prices in public sector. Wireline revenues continue to be pressured by secular trends, while also facing elevated year-over-year comps due to 2020 COVID spending. Consistent with our focus on driving high-value business, in the wholesale space we continue to rationalize our international voice traffic which is contributing to the revenue decline shown on the slide. Business segment EBITDA was $1.9 billion, down 2.4% from the same quarter last year, and business segment EBITDA margin was 24.8% in the quarter. While secular trends within wireline will continue to put pressure on margins in the near-term, we're encouraged by the growth opportunities associated with our business transformation efforts as they start to gain traction. Our market leadership in wireless across all customer groups and our continued investment in primary growth areas for Verizon Business Group will position us to take advantage of the growth opportunities in the future. We are encouraged by the results we delivered for the highest value portions of the segments in 3Q. Phone gross add volumes were above pre -pandemic levels, up 11.4% year-over-year and up 3% versus the same quarter in 2019. Total postpaid net adds for the quarter were 276,000. To better highlight some of the trends, on the slide we've broken out the net adds by public sector, and our higher-growth commercial businesses, which includes small and medium business and enterprise. During 3Q 2020, the commercial space primarily within small and medium business was suppressed. While public sector, buoyed by distance learning programs saw elevated net adds. In 3Q '21, we've seen a rebound in the commercial space, while distance learning disconnects have driven public sector volumes to lower levels. We expect these trends to continue into the fourth quarter. A portion of distance learning disconnects also impacted our phone churn and net add performance. Despite this, we delivered postpaid phone net adds of a 162,000. Now, let's move to our consolidated cash flow summary. The business continues to generate strong cash flow. Year-to-date cash flow from operating activities totaled $31.2 billion. The year-over-year change was primarily driven by lower cash taxes last year from a onetime benefit and higher working capital requirements this year due to greater volumes. Year-to-date capital spending totaled $13.9 billion as we continue to support traffic growth on our 4G LTE network, while expanding the rates and capacity of our 5G ultra wideband network. C-Band Capex was more than $1 billion through the third quarter, and we have placed orders for approximately $2 billion of related equipment year-to-date, giving us confidence that we will be within the previously guided incremental Capex range of two to $3 billion for the year as we accelerate our C-Band deployment. The net results to cash flow from operations and capital spending is $17.3 billion of free cash flow for the 9-month period. Net unsecured debt at quarter-end was a $131.6 billion, a $5.2 billion decrease versus the prior quarter. In addition to our third green bond issuance, we extended over $4.6 billion of near-term debt into a new 2032 maturity. As we continue to optimize borrowing costs and our debt profile, our net unsecured debt to adjusted EBITDA ratio was approximately 2.7 times. Our cash balance at the end of the quarter was $9.9 billion, which included the proceeds associated with our sale of Verizon Media Group. We expect lower levels of cash on hand as we progress through the fourth quarter and approach the close of the TracFone acquisition while continuing to execute on our business strategy within our capital allocation framework. Let's move onto Slide 14 for an update on guidance for the remainder of the year. We continued our strong first-half performance momentum in the third quarter. Hans and I are very pleased with the hard work our team is putting forth. And we're excited about the opportunities that lie ahead as we prepare for the C-Band launch. Our strong year-to-date results and momentum heading into the fourth quarter are allowing us to update guidance on both wireless service revenue growth, and EPS. Wireless service revenue growth is now expected to be around 4.0%, the higher end of the prior guidance. Adjusted EPS guidance is being increased to $5.35 to $5.40 up from the prior range of 525 to 535. Our guidance for the effective tax rate is unchanged. Capex guidance is also unchanged. Though I'd note that our assumption for our BAU spend of $17.5 to $18.5 billion is dependent upon no material changes in the current state of our supply chain. Our team continues to execute on our strategy and deliver strong operational and financial results. We are attracting high-quality customers that see value in our products and services, evidenced by growth in accounts, migrations, and step-ups. I look forward to continued momentum as we wrap up the year and position our base to take full advantage of all the things 5G Built Right has to offer. With that, I will hand it over to Hans to wrap up our prepared remarks.

[Hans Vestberg, Chairman and Chief Executive Officer]

Thank you, Matt. As you heard, we delivered a solid third quarter results and we are on track to meet or exceed all our 2021 commitments to the investment community. Our strategy is working and I'm confident in the strategy we have to deliver both strong results and premium experiences going forward. As we look ahead, we continue to focus on expanding our 5G leadership, capitalizing on wireless momentum and work towards our C-Band launch, deploying differentiating experiences for our customers, and execute our network as a service to actually deliver all 5 vectors of growth, and we look forward to delivering on all fronts and sharing our results in the coming months. With that, I hand it back to Brady.

[Brady Connor, Senior Vice President Investor Relations]

Thank you, Hans. Brad, we're ready to take questions.

[Operator]

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Please unmute your phone and record your name clearly when prompted. Your name is required to introduce your question. [Operator instructions] One moment for our first question. Our first question comes from Phil Cusick of JPMorgan. Your line is open, sir.

[Phil Cusick, JPMorgan]

Hi, thanks, guys. Hans, you discussed continued momentum into the fourth quarter and I see you recently pulled back on the more aggressive retention plans. Can you talk about what competition looks like in consumer right now, and any shift in underlying demand? And then second for Matt, given the strong performance in the recurring revenue businesses, does it makes sense to be less aggressive on reducing leverage and maybe allocate some free cash flow to buybacks given the low multiple on the stock? Thank you.

[Hans Vestberg, Chairman and Chief Executive Officer]

Thank you, Phil. Let me start with the competitive landscape. There is, of course a little bit more competitive landscape right now, but let me remind you on a couple of things. First of all, as we have learned from the history, broadband and mobility's, two of the most important infrastructure for any person in this country and in the world. So it puts strain into the competition. Secondly, we're in a moment where 5G scaling, the economy is strong, so of course that's a moment where we see a lot of competition. But anyhow, if you look at our numbers, we are competing extremely effectively. We are gaining the high-quality customers regardless all the type of competition we have. Not only that, the money if you look at our growth of 3.9%, we feel really good about that as well. That won't come to our service revenue. And we have been going back and forth on our promos. And the reason is that Roman (ph) and his team on the consumer side, they look at long-term profitability, high-quality customers when they come in and doing a promo. And right now we feel very good about how we compete in the market. So we're always going to have promos when we think is the right timing of it. We feel really good about it. And as we also saw that Matt talked about our increased guidance as well. So all in all, we feel good, how we compete in this environment. And if you look in track record, the last couple of quarter has been really strong in consumer and Roman (ph) and the whole team are doing a great job so I feel good about that. When it comes to the capital allocation, I'll let -- I can just say that we -- our capital allocation is clear and we focus number one, on investing in business and we are investing in the business this year and both in Capex, the spectrum and all of that, so that's number one. But we're also have a FSFR demand or 15 consecutive year of dividend increase and Matt and I, we constantly see that we have a position for the board so they can continue to do that. And we will continue to do that. And then we have our depth reduction, which Matt will talk about. And finally, we have buybacks that we can do all the time. What I can tell you is that we are going to have a conversation with the Board, which is the best way of doing capital allocation, the priorities and will continue to do so to see that our shareholders get the best out of Verizon. Matt.

[Matthew Ellis, our Chief Financial Officer]

Yeah, Hans, I think you hit on the key points there. We're always going to look at the pillars of our capital allocation policy and right now we continue to see a lot of opportunities to invest in our business. You see what we're doing there around the C-Band investment, for example, not just the spectrum, but also the Capex associated with that. Obviously, we said long term, we do believe deleveraging is the right priority. But we're also focused on returning capital to shareholders, and you saw that with the dividend. So Phil, you should expect us to continue to be thoughtful about capital allocation as we go forward.

[Brady Connor, Senior Vice President Investor Relations]

Great, thanks, Phil.

[Phil Cusick, JPMorgan]

Thanks, [Indiscernible]

[Brady Connor, Senior Vice President Investor Relations]

Brad, we're ready for the next question.

[Operator]

Thank you. The next question is from Simon Flannery of Morgan Stanley. Your line is open, sir.

[Simon Flannery, Morgan Stanley]

Great. Good morning. Thanks so much for the disclosure on fixed wireless. That's great to see. Perhaps you could just give us a little bit more color on the economics of the product. Is this a similar ARPU to a smartphone? Are we looking at mostly LTE or is this a mix of LTE and millimeter-wave? And then perhaps just coming back to the C-Band, I think you've said before 7,000 to 8,000 towers this year, getting to a 100 million covered [Indiscernible] by the first quarter. Perhaps, if you just update us on that and then how quickly do you really turn that into an expansion of your fixed wireless footprint as the marketing really start coincident with that, or is that a steady ramp during the year? Thanks.

[Hans Vestberg, Chairman and Chief Executive Officer]

Thank you, Simon. On the fixed wireless access, yes, you're right. It's a similar ARPU on fixed wireless access as on our mobility. And also, when it comes to the numbers we have is, as you said, it's a mix of 4G, it's millimeter wave in the fixed wires access right now. And as I said before when we talked about our 5G fixed wireless access, the usage on the network is very similar to Fios. They're even using more gigabytes on the fixed wireless access on 5G than they do on Fios. And we have a very, very good performance and quality. And remember, on the fixed wireless access, we are also doing, I would say, a different model with the sale of install and all of that, making optionality for our customers. And ultimately, the vision is clear for Verizon. We're going to be a nationwide broadband provider. We're going to have different accesses in different places depending on what is right for the customers and how quickly we can deploy. And we are investing in the Fios. You saw the numbers this month, we're adding 130,000 in this quarter -- or 129,000 to be exact. Net bands in broadband. So this is a great business for us and where you're [Indiscernible] fixed wireless access and then coming back to C-Band. As soon as we turn on C-Band, we're also going to augment the footprint that we can offer fixed wireless access. So -- and as we said in the opening remarks, we are on track for that to deliver of the one-year having a 100 million [Indiscernible] covered by the C-Band. At that, there are some challenging supply chain. But I can only say the team is doing an enormous work. And just to be clear on it, the long-term planning we have with our vendors, the projection or forecasting we have done for all our equipment vendors over two years before we start deploying, of course, is paying off right now that we worked very differently with our vendors and how we plan. We have also pulled resources and inventory higher in the network so we can easily see that we have access to it. So we have done a lot of things along two years, three years in supply chain, so we can be in a situation to mitigate challenge as we have right now. So all-in-all, that's where we are. Matt?

[Matthew Ellis, our Chief Financial Officer]

Yes, Simon, I think Hans h as some of the [Indiscernible] there. We've got good momentum in the fixed wireless business there you saw the 55,000 net adds in the quarter. That means we're approximately 150 thousand total subscribers on fixed wireless access at the end of the quarter, good momentum being built there. And as Hans said, as soon as we turn on C-Band, immediately be adding that to the technologies that we're selling on fixed wireless access. So good momentum buildup and then we've got that extra turbo booster come here in the next few weeks.

[Simon Flannery, Morgan Stanley]

Great. Many thanks.

[Brady Connor, Senior Vice President Investor Relations]

Yes. Thanks, Simon. Brad, ready for the next question.

[Operator]

Thank you. The next question comes from Brett Feldman of Goldman Sachs. Your line is open.

[Brett Feldman, Goldman Sachs]

Thanks. And just actually a follow-up here on your broadband business. You mentioned you're getting a mix of both LTE and 5G subscribers. I'm curious, who are these customers? Specifically, are you upselling into existing accounts or are these primarily new relationships for Verizon? And then, it's also notable that you are continuing to expand the Fios footprint. It looks like you're going to add over 400,000 locations open for sale this year and it seems like you would expect to be at or above that pace going forward. You really hadn't edged out that footprint for a long time, why have you decided to do that now? How big could the Fios footprint be and is all of this happening in your region or are you actually doing some of this out of region? Thank you.

[Hans Vestberg, Chairman and Chief Executive Officer]

Okay. On the customers on fixed wireless access, I would say they are probably roughly half and half, meaning coming from our existing base and all for taking from other cost -- from other suppliers. That's basically how they're coming in right now. And let's see how the mix going forward. But here we have the optionality that we've talked about before and we have the owner's economics to work with convergence if that's what our customers want to have. We basically have all of those optionalities right now and I feel really good about that. And then the second question on the Fios footprint, we have constantly of course, deployed Fios in our ILEC to go on us. And what we see right now is very strong demand and we winning the business. We're deploying -- the team is deploying, as I said, we're heading towards 400,000 open for sale this year and we will continue with that because we see a great demand and our win share is extremely strong in the Fios footprint.

[Matthew Ellis, our Chief Financial Officer]

Yes. Just a couple of things that are out there, Brett. On the mixture of the customers, as Hans mentioned, a good mix of 50-50 split there between new and existing customers. But also our comment that a good mix -- a good split between not just it being in rural areas and so on, but also seeing good traction in suburban and urban areas too, for those products. And when you think about those customers in the first 46 C-Band markets that will come online, that the customer's taking the LTE product there, getting a route to the -- also has C-Band in, so they could immediately step up to those speeds as soon as we turn C-Band on there. And the Fios expansion, there's a couple of pieces we see great opportunity as Hans mentioned. The other pace it's a great cost opportunity as well, as we continue to upgrade the network technology in that footprint as well. We've been investing in there for a number of years, maybe haven't spoken about it quite as much, but it continues to be a very good growth driver for the business. And we see very strong line of sight for it to continue to do so. 4.7% growth in Fios revenues this quarter, certainly something we can continue to build on.

[Brett Feldman, Goldman Sachs]

If you don't mind, as a quick follow-up there around the cost point. Those of us who live in regions that have Fios know that sometimes you can get Fios was maybe down the street. You can't -- are you kind of completing the communities? In other words, are you going to be at the point where you could finally rip out all this legacy infrastructure. Is that what you meant by the cost savings?

[Matthew Ellis, our Chief Financial Officer]

Right. That absolutely part of it. Now we're going to be all the way there, that's a long term goal for us, but certainly as you replace in a certain location, copper with fiber, there is a good benefit from a cost standpoint, in addition to the revenue step-up opportunities you get with that customer base. So it's a win-win on both sides of the P&L there.

[Brett Feldman, Goldman Sachs]

Thank you.

[Brady Connor, Senior Vice President Investor Relations]

Great. Thanks, Brett. Brad, we're ready for the next question.

[Operator]

Thank you. The next question comes from John Hodulik of UBS. Sir, your line is open.

[John Hodulik, UBS]

Great. Thanks, guys. Just a couple follow-ups again on the C-Band deployment. First of all, are you seeing any supply chain or labor shortage issues with that that may affect the timing of that roll out? And then beyond that, thanks for the 15 million home passed with fixed wireless by year-end. Can you give us a sense of what the C-Band deployment -- the sort of first phase of that? What that will do to that number? As that gets launched, do you turn on a number of more homes? And then lastly, can you give us a sense of how your go-to-market strategy will change it? And do you expect the C-Band deployment to change the trajectory of your net adds, both on a fixed and mobile basis when we see that early next year? Thanks.

[Hans Vestberg, Chairman and Chief Executive Officer]

On the C-Band, as I said before, there are, of course, challenges in supply chain. But our team has -- I think our team is the most outstanding operation excellence team in the world and they are getting around all of it. On all major equipment, radios, et cetera, that's already secured. This is in a warehouse and that's how we work. I mean, we do long-term planning. with our suppliers years back, so we feel really good about that. There has been some challenges to meet material. the team is working around them every day, finding new solutions in order for us to deploy and they will continue to do so. When it comes to resources, again, we secured our resources year of ahead to be prepared for these types of deployment we have. We are doing more deployment than we have ever done before. You talk about C-Band, we do mmWave 14,000 this year, we do fiber, we do orientations on the 4G, we do Fios, the team -- so it's many things they're doing, and we have never done more than this and I can tell you the team with supply chain and deployment are doing a great job. When it comes to them, 15 million households passed by year-end this year, that includes all the technologies we have. And of course, the second part that we guided for when we had our Investor Day is what to get the 50 million households path later on. So that includes all the technologies, including C-Band of course, and also how we deal with different types of devices, having all the different technology in them. So the team has been planning this, creating opportunities for us. And of course, without coming into 2022 yet, but the opening of the C-Band, we see great new opportunities. And as I said, also, in Investor Day, that means that we can accelerate and amplify our business case on 5G. That was the whole day thing with the C-Band, and the team is geared up for that and very focused.

[John Hodulik, UBS]

That's great. Thanks a lot.

[Matthew Ellis, our Chief Financial Officer]

So just following up on the bit about the open, the households cover. As you saw in the prepared remarks, we're 11.6 million at the end of the third quarter. Obviously, we'll continue to add some millimeter-wave and 4G for the rest of the year, but C-Band certainly will get us well over to 50 million as we turn that on.

[John Hodulik, UBS]

Thanks, guys.

[Brady Connor, Senior Vice President Investor Relations]

Thanks, John. Brad, we're ready for the next question.

[Operator]

Thank you. The next question comes from David Barden of Bank of America. Your line is open.

[David Barden, Bank of America]

Hey guys, thanks for taking the questions. I just wanted to return Hans to the competitive landscape. I guess, year-over-year, I think most observers would say that the promotions kind of look very similar as they did a year ago. And if anything, the wireless landscape's probably less competitive now than it's ever been in terms of postpaid phone net add availability. And as we look ahead, I think the things that people wonder about what's going to change as the EBP, and the TPP, and the renovated programs all go away, the super-normal kind of sport for the postpaid market might ebb. And second, you've got the cable companies coming in with new pricing plans. And then third, we've got the dish launch coming up. Could you kind of give us your perspective on how comfortable people should be about how the landscape is going to evolve as these things change? Thanks.

[Hans Vestberg, Chairman and Chief Executive Officer]

Yes. A lot of moving parts there as you talk about. Again, I mean, I think that what we have -- and now, we start with consumer because remember also our strong position, wireless on the business side and basically we are leading in every segment, so sometimes we forget to talk about our strong areas. But let me start with consumer because I think your question is a little bit more geared to consumer. Remember how we have built our [Indiscernible]. First of all, we have the best network, we have kept the best network. We've augmented and we are, of course, adding more spectrum to it right now with C-Band, so that's very important. The second part is that the value we're doing besides having the best network, of course, with all the offerings we have created over time with Discovery, Disney Plus, which all of them are giving us profitability and retention. And you see the share numbers in this quarter. I think we have found the model with Mix and Match, and if things that we are offering our customers on the wireless side has really paid off with both the loyalty, but also the step-ups. And remember, when Matt talked about that's where I'm now, 1/3 of all the unlimited beyond unlimited premium. But we still have, let's say, 1/3 omitted plan as well. So we have so many steps to continue to move our customers upwards. And that has been a strategy from beginning, and it's clearly different than anybody else in the market, how we can do that. Both offered the best network and the experiences that we have, as well as the Mix and Match that we have in the network. So I feel good about the -- regardless of what type of competition is there and how it changes. We have owner's economics of everything we're doing, that was very clear from the beginning, we'll bring our own fiber, we have the full network and that's why we can have ebbs -- and windows on the network, which will also are benefiting from. So the whole idea with the strategy we laid out is just playing straight into what's happening in the market where mobility and broadband is the essential infrastructure for every individual in the world at the moment. And hey, everybody wants to be here. We have the best assets. That's basically how it looks.

[Matthew Ellis, our Chief Financial Officer]

There are a couple of other points, Dave, if I can. So you mentioned the EBBP impact on the marketplace and certainly, we're supportive of all efforts to make digital connectivity available and accessible to everyone in the country and we're participating in those programs. I would though say that in terms of our gross adds and new customers coming in, it's a very small portion of that. The majority of our EBBP participation is with existing customers rather than new customers. So it's not a driver of gross adds for us. And you also mentioned that obviously in the marketplace, there's been new plans that have come to the market in the past 6 months to 9 months. And what I would say is just look at the volumes we've had, especially in the last 2 quarters. Even with those new plans in place, you see the high-quality volumes that we've put on in that environment. So you have to look across both the service revenue and the handset components of the offering to customers. You add in the other values into products and services that we bring to customers too. This is the strategy we've been working on for 2 years to 3 years now. Obviously, it was a bit of a dip when we hit the pandemic, but the strategy was driving revenue growth before the pandemic and you see it driving revenue growth now as we continue to focus on high quality customers and increasing the value of our base, and it shows in the results.

[David Barden, Bank of America]

And if I could just quick follow-up, Matt. As we look at the implied performance in business wireline, is a portion of that related to Verizon's willingness to be more aggressive on price and throw more elbows to hang onto customers knowing that those enterprise relationships are the groundwork for potential new wireless relationships as we think about enterprise 5G?

[Matthew Ellis, our Chief Financial Officer]

Yeah. No, I think there's a couple of items when you look at the wireline part of business revenue results for the quarter that are not related to what you mentioned. One, last year during COVID, we saw a little bit of a step-up in some of the cold voice data revenue that we hadn't seen in quite a while. We're now lapping that and those volumes are returning to their pre -pandemic trends. The other thing is we've stepped out of some of the wholesale international voice business that had revenue, but not significant margins associated with it. So we wanted to focus on value driving activities. We continue to compete effectively in the enterprise space in wire life. But on the quality and reliability of the service we provide, obviously we aim to be competitive there, but I'm not seeing us do anything out of the ordinary of what we were doing previously. And as you mentioned, those relationships are very important to us as we go into the 5G era and we've already seen those relationships payoff with the work being done, working through those opportunities in [Indiscernible] with a broad array of enterprise customers.

[David Barden, Bank of America]

Great. Thank you, guys.

[Brady Connor, Senior Vice President Investor Relations]

Thanks, Dave. Brad, we're ready for the next question.

[Operator]

The next question comes from Michael Rollins of Citi. Your line is open.

[Michael Rollins, Citi]

Thanks and good morning. Two questions, if I could. First, I'm curious if you're seeing any impact s of the inflation on your cost structure and related to that, what are the opportunities and the specific products where Verizon could try to pass through any increase in input cost and get better pricing? Second question, just taking the reaffirmation today that Verizon wants to be a national broadband provider for homes, businesses, and on-the-go, how are you evaluating that build-versus-buy decision of using your spectrum in 5G technology to introduce to fixed wireless broadband services versus the possibility of acquiring cable and fiber assets in the future?

[Hans Vestberg, Chairman and Chief Executive Officer]

I can start with the second question, Michael, as on the inflation. When it comes to our rollout on nationwide broadband and playing with that, of course, remember, we are doing a lot for fiber already right now. We're doing -- Remember, we have been reporting on our One Fiber project, which is still ongoing in the most metropolitan area we're building fiber and of course, that is setting us up to have it all this economics on the broadband and then at the access point, we will do a different type of 4G access. That's what new -- the reason we do that because there's so much after when it comes to coming out to the customer, and we want to be innovate as well and having a self-install and all of that combined with it. That we're always on our fiber when comes on the outside our island, we have looked into buy versus build all the time. We have come to the conclusion we want to build, we built our own fiber network because we want the owner's economics on fiber so that work is already done. So we feel really good about it. We're going to have wireless economic nationwide on broadband over time here. And we can work with our wireless offering, our broadband offering. We, we created the two go-to-market Verizon Consumer and Business Group thinking about our customers, how they do products, how to do platforms, the user experience. This all comes into play right now and I couldn't be more excited on that right now because the momentum for mobility and broadband is happening. We have prepared and worked now for 3 years to get where we are and we -- I feel really good about what we have and the strategy is really working. Look at the last couple of quarters here when we talk about our net additions, talk about the revenue growth. And as I also said, when we spoke earlier, I mean if you look at the second quarter when everybody has reported, we also take the largest share of industry service and all revenue growth in the market. I mean, that's really what we're focusing on. We're focusing on getting the revenue growth. And that's a little bit of the answer to your question on inflation as well that Matt is going to soon take over, of course. We still have a lot on the wireless side where we can migrate customers up to higher plans, and that's of course the best way to see that we are getting incremental revenues from our customers, but also give them more value and experiences.

[Matthew Ellis, our Chief Financial Officer]

Yes. Thanks, Hans. Mike, certainly, we are seeing inflation in our business here. How long that lasts, obviously, we're going to have to wait and see and we're all monitoring that closely. But we're seeing that come across certainly in labor rates, we're seeing in commodities, driving utilities and whatnot. So -- but that's why the things we've done on the cost side over the past few years and continue to do are so important because it gives us the opportunity to be able to handle those -- any of those prices coming in and continue to produce good margins. So we will continue to be focused there. And then as Hans said, our opportunity on the pricing side is really to step customers up. If you've got direct cost out there that we can pass through that we certainly will always look for the opportunity to do that. That's why you see the changes in our content model from the legacy linear model, where there wasn't clear transparency to the consumer between the increase in the cost from the producer there to what they were paying. What you've seen, what we're doing in the wireless space with content, gives a lot more transparency. So as costs go up, it's much easier for those to flow through to the end-user.

[Michael Rollins, Citi]

Thanks.

[Brady Connor, Senior Vice President Investor Relations]

Yeah, thanks, Mike. Brad, we're for the next question.

[Operator]

The next question is from Colby Synesael of Cowen. Your line is open.

[Colby Synesael, Cowen]

Great. Thank you. Two if I may. First, you're starting to talk more about access. They disclosed more on fixed wireless, which we appreciate, but you've also talked about the other 5G growth applicant being Mobile Edge Computer, MEC. When will we start to see that show up in the numbers and actually start positively contributing to growth and where -- what line items would you point to where we will be able to see that? And then secondly, Hans, you mentioned that next quarter we should expect to see 2022 guidance. Just curious if your views on the metrics that you're focusing on might change, you're going to be seeing incremental headwinds, particularly the EPS, tied to some accounting. I believe on the spectrum. Just curious if you believe guiding to EBITDA and or free cash flow is something that might become more important when we see that guidance for next year. Thank you.

[Hans Vestberg, Chairman and Chief Executive Officer]

Great question, Colby. First, on Mobile Edge Computer, first of all, we're doing a great progress in Mobile Edge Computer and you've seen that we're made announcements in the quarter with the biggest cloud providers in the market, both on the private 5G Mobile Edge Computer. And as you remember, there are basically 3 use cases. One, is the public Mobile Edge Computer, and then it's a private Mobile Edge Computer, and then it's private 5G networks. All of them are in execution right now. We're working with customers. We have announced a couple of commercial contracts already, like coordinating the British fort, etc. So that's already happening. And, And of course it takes some time because we are actually creating a total new market, and we're actually alone in this market. Nobody else in the world has launched mobile edge compute at this moment. So of course, we feel really good about that. And the team is working through the funnel all the way from proof of context to new applications. And that's how it works, when you create new markets, etc. So we will come back as soon as we feel it's time to start reporting it as we're have done with five-weeks fixed wireless access, but even more excited or the Mobile Edge Computer what I've seen the last year here with the technology solutions we have, and also the customer interaction we have together with the main partners. I mean, we have the biggest partners you can ever think about in this that are equally much invested as us, because that was part of the strategy to bring different parties. We have there, so we will continue with that. And we will come back and report, and we will give you new deals and how all this is progressing with partners over time and ultimately, of course, it's going to be financials and that's going to show up. Initially, of course, it's going to be on Verizon Business Group that's going to have that as revenue. The rest would be to see opportunity longer term, which can end up in consumer but predominantly in the beginning is a Verizon business group opportunity. Matt on guidance, have you thought through what you're going to do next year? He hasn't told me yet.

[Matthew Ellis, our Chief Financial Officer]

Colby, great question. So obviously we'll get into guidance at the next call. But as you mentioned, we always look at what year-over-year pressures maybe in there, especially things that are accounting-related rather than cash flow-related. We'll make sure we have the appropriate level of transparency around that. The important thing for us to be out there demonstrating that guidance is how our strategy is working and it's going to show up in revenue growth and cash flow growth. And you see that this year we'll find a way to make sure that we can communicate clearly that we're continuing to grow the top-line of the business and it's flowing through into the cash generation of the business as well, which is ultimately what it's all about.

[Brady Connor, Senior Vice President Investor Relations]

Great.

[Colby Synesael, Cowen]

Okay. Thank you.

[Brady Connor, Senior Vice President Investor Relations]

Thanks, Colby. Brad, we're ready for the next question.

[Operator]

Thank you. The next question comes from Craig Moffett of MoffettNathanson. Your line is open.

[Craig Moffett, MoffettNathanson]

Yes, hi. Two questions, if I could, both sort of at a strategic level, Hans. First, maybe you could just update us on your expectations for -- what exactly do you do differently when you get the TracFone asset? How do you think about the go-to-market strategy in the prepaid market in particular? And then second, you've started to see some of the whether it's Opensignal or other reports suggesting that T-Mobile's network for 5G is faster and broader coverage. How do you think about maintaining the best network advantage that you've had? And what gives you confidence that you can convey that in the business and consumer markets?

[Hans Vestberg, Chairman and Chief Executive Officer]

I can start with the second one. First of all, we rely on the RootMetrics because that's the most sophisticated and scientific way of measuring the network, and it's -- we're undoubtedly the leader there. And without going into my competition because I never talk about them, but clearly one is always lost. So if we're done talking about TracFone, which is of course an exciting opportunity for us, which is still to be closed. We're not -- we don't have the go-to-market and the brands that TracFone have. They are so good on prepaid, and they've showed that. But at we will, of course, support them with these all the back-end support, all the way from supply chain, IT support, UX customer care, and all of that. But clearly, we want to keep the points of sales. We want to keep the offerings, and we want to serve the value market. That's where we are. I cannot go further into that because we still have the pending approval of it, but we will give you even more color, Craig, as soon as we have closed this one.

[Craig Moffett, MoffettNathanson]

Thank you.

[Brady Connor, Senior Vice President Investor Relations]

Great. Thanks, Craig. Brad, we're ready for the next question.

[Operator]

Thank you. The next question comes from Kannan Venkateshwar of Barclays. Your line is open.

[Kannan Venkateshwar, Barclays]

Thank you. Maybe a longer-term question. When we look at your growth algorithm on the consumer side, You have essentially an ARPU -- an upper growth trend line as well as revenue trend-lining, which is trailing [Indiscernible]. Probably continue as you deploy C-Band. And then as your [Indiscernible] increases, G&A should also pick up as we head into next year. And then there is the competitive backdrop which potentially capture [Indiscernible]. When you think about this growth algorithm, how do you keep margins impact when your revenue growth is essentially trailing?

[Brady Connor, Senior Vice President Investor Relations]

Yeah. Can -- you broke up there but I think what you were trying to ask is how do we think about margin profile as ARPA trails the service revenue growth? Matt, your thoughts?

[Matthew Ellis, our Chief Financial Officer]

Yes. So work in our team, we have tremendous opportunities and you see it come through in the results we've delivered now for a few quarters. So the ability to bring high quality customers in and then step them up. So the step-ups give us the increase in ARPA. And then the service revenue is obviously a combination of the increase in revenue within the base. And then also the impact of the new customers coming in. So as you do that, we're very, very confident that you continue to add scale to our business, which is already the best-in-class from a scale standpoint and that will show up in the margin profile of the business going forward. So I expect us to continue to have a very strong margin profile going forward. It's built on executing the strategy. You see that in the results this year. You compare the consumer margin in 3Q this year to two years ago, you see that strategy is working and delivering results at both of the top-line and the margin line.

[Brady Connor, Senior Vice President Investor Relations]

Perfect. Yes.

[Kannan Venkateshwar, Barclays]

[Indiscernible]

[Brady Connor, Senior Vice President Investor Relations]

Kanaan, we're having technical difficulties with you. We'll have to catch up later. Thanks.

[Kannan Venkateshwar, Barclays]

No problem.

[Brady Connor, Senior Vice President Investor Relations]

Yeah. Brad, we have time for one more question.

[Operator]

Thank you. Your last question comes from Frank Louthan of Raymond James. Your line is open.

[Frank Louthan, Raymond James]

Great. Thank you. Can you give us a little more color you mentioned there was a split in the fixed wireless, the team, the consumer and business. How is that shaking out? And then on the business side, it's still a little bit weaker there. Is that just continued pricing pressure in the market or is it a share issue or walk us through how you're looking at the enterprise space going forward.

[Hans Vestberg, Chairman and Chief Executive Officer]

I talked about the fixed wireless access on the business side. It's called BCC Internet on that signed offering we have. And of course, we started off with our fixed wireless access on the consumer side, and we later on added in our business to actually have access to it. That's why because that's what we want to restart. I wouldn't say we have really good traction on the business side on fixed wireless actions, small and medium businesses. clearly where we have our stronghold, and we're being the clear leader. So we see this as a great opportunity for our Verizon Business Group as well. And again, we are now adding products and solution for Verizon Business Group that over time should offset the wireline decline that we have that Matt talked about. When we talk about the Verizon Business Group, I haven't talked enough about them, but the momentum on wireless there is really good. Look at it, small and medium business are coming back. They're doing a great job. On the enterprise side, the wireless business is doing well as well. The only area is the public sector that's coming a little bit back, but that's a very natural thing because the increased demand of home education and etc. During the COVID, of course, had a spike in wireless connections, which you see is naturally coming down a little bit right now. But the momentum on the wireless side, on the Verizon Business Group, and then you add the new opportunities, everything from application on top of the network, the Mobile Edge Computer, the fixed wireless access. And over time, more so opportunities outside the ILEC on vials, or at least on fiber. So that's a great opportunity for us, and that's what we outlined already in 2019 when we decided to transform that business to see that we are really well prepared for capturing those opportunities and those transformations that all the enterprise will need and companies will do to digitalize over time. So I think we're in a good place. [Indiscernible] team are doing a great job.

[Frank Louthan, Raymond James]

Great. Great. Thank you.

[Brady Connor, Senior Vice President Investor Relations]

Yes. Thanks, Frank. That's all the time we have today for questions. Thanks for joining the call and everybody be safe.

[Operator]

Ladies and gentlemen, this does conclude the conference call for today. Thank you for your participation and for using Verizon Conference Services. You may now disconnect.